IPO Glossary & Dictionary

Application Supported by Blocked Amount (ASBA) is the mandatory payment system introduced by SEBI for bidding in public issues. Under ASBA, the investor's bank blocks the application funds in their own bank account. The funds are debited only if shares are allotted, and the remaining amount is unblocked automatically, eliminating refund delays.

The Draft Red Herring Prospectus (DRHP) is the preliminary registration document filed by a company with SEBI before launching its IPO. The DRHP contains detailed info on the business model, financial statements, objectives of the issue, industry analysis, and risk factors, but lacks specific details on share prices or dates.

Earnings Per Share (EPS) is a critical profitability indicator calculated by dividing a company's net profit by the total number of outstanding common shares. It shows how much profit is allocated to each individual share, helping investors assess the financial health and earning power of the business.

Face Value is the nominal value of a share as stated in the company's books and memorandum of association. Unlike the market price or IPO issue price (which are driven by supply, demand, and valuation), the face value remains constant unless the stock is split. It is used to calculate dividends and capital values.

Grey Market Premium (GMP) is the premium price at which IPO shares are bought and sold in the unofficial, unregulated grey market before they are officially listed on the NSE or BSE. While GMP is highly popular and serves as a rough indicator of listing interest, it is highly volatile and speculative, and should not be used as a primary investment signal.

The grey market is an unofficial and unregulated over-the-counter market where dealers trade IPO shares, bid applications, and premium claims before the official listing. Transactions are settled in cash based on mutual trust, and the market carries significant counterparty risks and carries no SEBI or exchange backing.

The Lot Size is the minimum number of shares an investor must subscribe to when bidding for an IPO. Investors can only bid in multiples of this lot size. The total bid value for retail investors is usually designed to be near ₹14,000 to ₹15,000 per lot, with a maximum cap of ₹2,000,000 for retail accounts.

Net Asset Value (NAV) represents the book value of a company's assets minus its liabilities, divided by the total number of outstanding shares. It indicates the net worth of a single share based on historical balance sheet figures, serving as a core component of baseline asset valuations.

The Price-to-Earnings (P/E) ratio is a key valuation metric calculated by dividing the company's current share price by its Earnings Per Share (EPS). It indicates how much investors are willing to pay for every rupee of earnings. A high PE ratio might suggest the stock is overvalued or has high growth expectations, while a lower PE ratio may suggest undervaluation or slower growth.

Return on Equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders' equity. ROE is expressed as a percentage and represents the profitability of a business relative to the equity capital provided by its shareholders. It indicates how efficiently management is using shareholders' funds to generate profits.